Highest-ever inflow of remittances

The year 2011-12 seems to have opened on a very positive note so far as the inflow of home remittances, which has lately emerged as an important source of support to maintain the viability of the external sector, is concerned. According to the latest data released by the State Bank of Pakistan, overseas Pakistanis remitted a record $1.31 billion in August, 2011 as against $933.06 million in the same month last year, showing a tremendous increase of 40.45 percent.
The previous record was set in June, 2011 when overseas Pakistanis had sent home $1.10 billion. More satisfying was the fact that this was the sixth consecutive month when overseas Pakistanis had remitted over $1 billion to the country. They had sent $1.05 billion in March, $1.03 billion in April, $1.04 billion in May, $1.10 billion in June and $1.09 billion in July, 2011. Another healthy aspect was that remittances from all the countries showed impressive growth. Inflow of remittances from Saudi Arabia, USA, UK, GCC countries and the EU amounted to $309.8 million, $294.5 million, $263.6 million, $163.9 million, $134.3 million and $42.4 million respectively as compared with the inflow of $205.6 million, $212.6 million, $186.8 million, $108.3 million, $108.5 million and $29.1 million respectively in August, 2010. Total remittances during the first two months of the current fiscal ie July and August, 2011 also amounted to a record level of $2,406.8 million, showing a massive growth of 39.6 percent, when compared with $1.724 billion received in the same period last year. Again, the growth was shared by all the countries where our expatriates are located.
A steep rise in home remittances, particularly their encouraging trend over the past six months or so, is indeed a very welcome development for the country. At the present rate, the amount sent by overseas Pakistanis could be more than $14 billion during FY12 or nearly equal to 58 percent of the country's export proceeds. Their continued inflow at such a high rate is important to bring about an improvement in the current account balance of the country, especially at a time when the trade deficit of the country is increasing and there is no other credible source to fill the external sector gap. During July-August, 2011, for instance, the trade deficit of the country amounted to $3,328 million which was higher by 19.54 percent than last year.
An inflow of over $2.4 billion in the form of home remittances would, of course, be very useful in bridging the widening gap between the exports and imports of the country. In the absence of such a financing item, which is an unrequited transfer, the country would have been forced either to increase its external debt liabilities or reduce its imports by the same margin and face the prospects of constrained economic activities within the country. Needless to add that the jump in home remittances, besides contributing to the improvement in the current account balance, would also be helpful in maintaining a comfortable level of foreign exchange reserves, stabilising the exchange rate of the rupee, softening inflationary pressures in the economy and negotiating another programme with the IMF with confidence.
There could be a number of factors contributing to the steep rise in home remittances. Authorities of the country generally attribute the sharp growth to "Pakistan Remittance Initiative (PRI)" launched jointly by the State Bank, Ministry of Finance and Ministry of Overseas Pakistanis but that could only be a part of the story. In our view, closing the gap between the official and unofficial exchange rate of the rupee, political uncertainty in several countries where our workers are employed and increasing dependence of the households on home remittances due to depressed economic conditions, including higher inflation within the country may be more compelling reasons for the expatriate communities to remit their savings to Pakistan through official channels.
Although, it is difficult to verify or quantify but a perception is also developing that a rush for whitening the tainted money through remittances and money sent by anti-state elements for terror financing may also be partly responsible for higher level of remittances. All of this calls for monitoring the situation very closely with a view to ensuring that the flow of remittances is maximised but unscrupulous elements, both within the country and abroad, do not take undue advantage of the liberal incentives offered by the country in this connection.